A better year for high net worth investors
High net worth investors are set for a better year as corporate profits improve in a healthier macroeconomic environment, according to private bankers.
American Express Bank's head of investment services Ernest Leung said investment sentiment was set to stage a comeback this year, thanks to more sustainable long-term growth rates for corporate earnings, economic growth led by consumer and business spending and the reflationary policies of central banks.
Kam Shing-kwang, managing director and head of investment management Asia for JP Morgan Private Bank, said the present investment climate differred from last year as investors held more reasonable expectations, valuations had improved and corporate balance sheets were looking much healthier.
'We expect investors' risk aversion to stabilise and we would recommend our clients to step up on their risk scale by adding a little to risk assets,' she said.
But she added markets would remain volatile this year due to geopolitical uncertainties and the risks of a slowdown in consumption growth, meaning investors should remain prudent.
According to David Wong, executive director and regional head for North Asia at American Express Private Bank, doubtful sentiment has driven more investors to seek professional advice.
American Express' client base - of people with a minimum of US$1 million, but more typically with US$3 million to US$5 million - and assets under management grew by double digits last year.
'In 1995-96 people didn't need any advice . . . everybody had a magic wand. Anything they touched, the prices would go up. In a slow and doubtful market, people tend to seek out the help of professionals,' Mr Wong said.
He said the private bank's clients had seen returns outperform most benchmarks, with exact figures depending on actual portfolio and asset mix.
About 60 per cent of the bank's assets under management are kept in the form of deposits or cash-related products, according to Mr Wong.
Mr Leung expects interest rates to remain low this year, meaning products suited to low-interest environments will remain favourable to investors.
Last year guaranteed funds were the king of investment vehicles, booking the lion's share of investment dollars.
JP Morgan clients last year benefited from investments in United States government agency notes, which in some cases offered almost six times the return of other triple-A fixed-income investments. Emerging markets debt also gave a positive performance. Clients were advised to diversify out of US dollars into Swiss francs, while hedge funds and long-term private equity investments offered a move away from traditional asset classes.
This year, the bank believes some attractive opportunities are emerging in equities, particularly in sectors such as pharmaceuticals and biotechnology that are uncorrelated to economic cycles. Across all sectors, investors should keep an eye out for firms showing improved cash flows and balance sheets. Companies with high operating leverage, such as industrial cyclicals, basic materials and telecommunications, stand to benefit once the economy improves.
Ms Kam said aside from higher-risk equities, investors were advised to keep a hedge fund portfolio; diversify into Swiss francs, Norwegian kroner or euros; and include some good-quality corporate debt in their portfolios.
